Sunday, February 12, 2012

Citing "new bank regulations" and "the fact that we are constrained to act in this manner", Canada-based Paxum has exited from the bitcoin business which put them on the map in 2011. On February 10th, Paxum stated that they can no longer accept any accounts related to bitcoin or bitcoin exchanges and that all current bitcoin-related accounts have been closed. Paxum spokesperson, Ruth Blair, posted Paxum's rationale here and here.

Paxum is an e-wallet company that also offers the Paxum Prepaid Mastercard via Choice Bank in Belize. Effective immediately, this action has impacted all customers that rely on Paxum for two-way transfers into and out of the exchanges, but it was first noticed by exchange intermediary BitInstant and the floating-rate exchange TradeHill.

Paxum, Inc. is licensed and registered as an MSB (Money Servce Business) with main offices in Quebec, Canada. Apparently, the MSB regulatory body in Canada, FINTRAC (Financial Transactions and Reports Analysis Centre of Canada), has decided to exert some soft pressure on e-wallet companies and their banks that facilitate bitcoin exchanges.

As no court jurisdiction has ruled on whether bitcoin is actually money, the regulators have decided to issue statements of guidance as to how bitcoin may or not be interpreted by the courts. The result of this has been to exert regulatory influence through warnings because the licensed money service businesses are being 'pre-warned' of potential legal issues ahead. As with PayPal and others, the adjustment that this causes has revolved mostly around modifying the company's terms of service to list 'currencies and currency exchange services' as a restricted class of transactions for the e-wallet or e-money company.

Personally, I don't think that this was orchestrated by Mastercard. According to Paxum, they were one of the participants at the table (and even that is via Choice Bank in Belize). People are reading too much into this. AurumXchange still has a Mastercard, no problem. This is specific to Canada and the banks that handled Paxum's inbound deposits and outbound wires which is why the auditors were there.

From my paxum account /announcements/: "Bitcoin TerminationEffective immediately, Paxum Inc can no longer accept any accounts related to Bitcoin or Bitcoin Exchange. All current Bitcoin accounts have been closed and may no longer perform any transaction. Account holders will be able to withdraw their funds via wire transfer."

Looks to me like the Powers that be are waging war against bitcoin, shutting down access to it through exchanges, what are the solutions, it is a war and we must find a solution, preferably multiple solutions.

Seems that Paxum wants to focus mostly on adult affiliate programs for now, and bitcoin is still considered too risky partner. Other similar and bigger services, like e-gold and epassporte have fallen down because of taking too much such risks.

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About Me

I am an e-Money researcher and a Founding Director of the Bitcoin Foundation. My career has included senior influential posts at Sumitomo Bank, VISA, VeriSign, and Hushmail.

"Free-market protagonists, such as Matonis, regard cybercash as better than traditional government-issued or -regulated money, because it is determined by market forces and thus nonpolitical in nature." --Robert Guttmann, Professor of Economics at Hofstra University, in Cybercash: The Coming Era of Electronic Money, 2003

"Matonis is quite correct that the new technology makes easier the use of multiple private currencies." --Mark Bernkopf, Federal Reserve Bank of New York, in "Electronic Cash and Monetary Policy", 1996

"Matonis argues that what is about to happen in the world of money is nothing less than the birth of a new Knowledge Age industry: the development, issuance, and management of private currencies." --Seth Godin in Presenting Digital Cash, 1995